Where Did Our Productivity Go?

Last Updated Oct 5, 2010 1:31 PM EDT

Despite long-term increases in labor productivity, the average return on assets (ROA) of American companies has steadily fallen to almost one quarter of what it was in 1965. That is despite (or because of) new technology, the Internet, personal computing, mobile connectivity and the insane hours we all work.

By anyone's measure, this represents failure. It's a number that should shock and provoke every business leader and business school. We are doing less with more -â€" at a time when we need to be doing exactly the opposite.

What has gone wrong? One explanation is that the way we manage our organizations is, frankly, terrible. We work people too hard and too long. We put huge effort and resources into hiring talent â€"- and once we've got it, we just burn it out. We work people too hard, thinking more hours = more output. That's fine if you're making widgets, wrong if you make contracts, software, anything that demands brain, not brawn.

A further explanation may lie in the increased complexity of the work we undertake. In other words, everything we make and do is just that much harder. The sheer amount of brain power required to generate a dollar's profit is greater and takes longer. I think this is plausible, but it masks a problem: many of the processes we use to run our businesses are likewise more complex, perhaps overly so. Financial titans will blame regulation, but I'd also argue that much of our work today is about engineering plausible deniability -â€" covering your backside, avoiding potential litigation -â€" rather than about true productivity. How much of your work is about avoiding problems rather than finding solutions?

Some consultants argue that we've lost -â€" or failed to maximize -â€" the potential inherent in collaboration. In effective organizations, the more people work together, the more creative they become. But in highly individualist cultures like the U.S. and U.K., this collaborative spirit has to be developed; you cannot take it for granted.

Or is teamwork in part the culprit? When I see rooms full of executives I often wonder whether all those people are necessary. In theory, you get better decisions from teamwork. But how often does your decision have to be that good? Do we throw teams at problems that individuals could solve more quickly and easily?

It's worth asking these questions in your own business. Because although straight-line declines are rarely seen in reality, the implication of the numbers is that by 2020, we will be back to the productivity levels of 1965. Improvement: zero. How would you explain that?

(Photo courtesy of Flickr user Arni J.M. C.C.2.0)

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    Margaret Heffernan has been CEO of five businesses in the United States and United Kingdom. A speaker and writer, her most recent book Willful Blindness was shortlisted for the Financial Times Best Business Book 2011. Visit her on www.MHeffernan.com.